Ronald Dye

‘Consumers will want organizations to account for the social goods they claim to provide’

The trend toward increased complexity is irreversible. Business transactions are just more complicated today than they were even 10 years ago, and in the future, they will be even more complex. If accounting is to be useful to investors and managers, it has to reflect the content of these transactions, and so accounting, accordingly, will grow more complex.

This trend will force current and future generations of managers to become more knowledgeable about accounting. For people already working in the financial services industry or headed that way, a sophisticated knowledge of accounting is now “table stakes” — you can’t play the game if you don’t have those skills. This will become increasingly true in the future.

But even for non-finance managers, a sophisticated knowledge of accounting has become indispensable. For example, just a few years ago, knowledge about the accounting for derivatives was considered esoteric for all but the most diehard quants. But now, many managers must know how derivative transactions work and how to account for derivatives to manage their firms effectively.

Accounting won’t only be of interest to managers and investors who want to bury their noses in firms’ financial statements. For example, consumers are demanding that firms reduce their carbon footprints, and they are going to want objective, audited evidence that firms that say they have done so can back up those claims. The same goes for many other corporate actions. Consumers will want organizations to be able to account for the social goods they claim to provide, from establishing that their subcontractors in Third-World countries provide their employees with “fair” labor conditions to verifying that they dispose of their waste in an environmentally friendly fashion. Increasingly, accountants are being called upon to perform these verification services, and I see only more demand for such work in the years ahead.

The old saw that “you can’t manage something if you can’t measure it” is still true. What’s new is the set of things that accountants can measure and that managers want measured: the impact of complex, global, multi-party transactions on a firm’s balance sheet, for example, or the effect of community outreach programs on the reputation of a firm’s management.
In these areas and more, accounting can play a role.

As the economy grows increasingly global, interconnected, competitive and cognizant of environmental issues, the ability of firms to account
for — that is, to measure — the impact of their actions will only become more important.

Ronald Dye is the Leonard Spacek Professor of Accounting Information & Management. He lectures widely on accounting issues and is currently exploring how firms can improve strategic decision-making through accounting choices.